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GM vs Tesla: Which Stock Is A Better Buy?

A Tesla super charger station. Image source: Flickr Image.

GM and Tesla are both industry leaders in the automotive industry, developing cutting edge technology especially in the all-electric vehicle space in recent years.

Both companies are racing to outrun each other by spending billions of dollars in research and development, hoping to create not only the next generation electric vehicles but also the emerging self-driving technology.

With that said, both companies’ stocks are worth buying and have their respective pros and cons when it comes to investing in their stocks.

This article compares both Tesla and GM in several aspects such as vehicle deliveries, revenue growth and dividends just to name a few and find out which company’s stock is a better buy.

So sit tight and read on to find out more!

Tesla vs GM: Vehicle Deliveries

GM vs Tesla in vehicle deliveries

GM vs Tesla in vehicle deliveries

The first factor to consider when it comes to which company to invest would be the vehicle deliveries. Since both Tesla and GM are auto manufacturers, the vehicle deliveries represents a crucial indicator that basically relates to the growth of the companies. The metric may point to not only the financial well-being but also the respective stock prices.

As such, I have created the chart above that compares the vehicle deliveries of both Tesla and General Motors for the past 3 years from 2017 to 2020.

Based on the current chart, you can see that both plots are running in opposite direction, with GM’s plot declining as opposed to the increasing trend for Tesla’s plot during the 3-year period.

Between 2017 and 2019, GM’s total vehicle deliveries has declined quite substantially from about 1.5 million on a quarterly basis in 2017 to only 1 million units in 1Q 2020.

On the flip side, Tesla’s total vehicle deliveries has increased significantly during the same period from about 25,000 units per quarter to nearly 90,000 units per quarter in 1Q 2020.

While Tesla’s vehicle deliveries are much lower than GM’s vehicle deliveries in absolute term, Tesla’s growth rate in vehicle deliveries was nearly 400% over the 3-year period compared to GM’s declining vehicle deliveries during the same period.

In this aspect, if you are looking for growth in one of these automakers, Tesla beats General Motors by several miles when it comes to car deliveries growth.

Tesla vs GM: Automotive Revenue Growth

GM vs Tesla in automotive revenue

GM vs Tesla in automotive revenue

Similar to vehicle deliveries, the revenue is another important indicator that tells the growth of both companies and is one of the crucial factors in determining which companies to invest.

As the above chart shows, both plots are also running in opposite direction, with Tesla’s plot ticking up steadily compared to the declining trend of GM’s plot between 2017 and 2020.

On a quarterly basis, Tesla’s automotive revenue has increased from $2.7 billion in 1Q 2017 to more than $5 billion as of 1Q 2020. The increase represents almost a 100% climb in terms of the company automotive revenue.

In contrast, GM’s automotive revenue has been on a decline between 2017 and 2020, dropping from $38 billion in 1Q 2017 to only $29 billion in 1Q 2020. The decline represents a 24% drop of GM’s automotive revenue for the past 3 years.

In absolute term, GM’s revenue has been much higher than that of Tesla’s for the past 3 years. In fact, GM’s automotive revenue was nearly 600% higher than that of Tesla as of 1Q 2020.

Nevertheless, the difference in size will not be much of an issue for investors looking for growth.

Again, Tesla beats General Motors when it comes to revenue growth.

Tesla vs GM: Dividends

Investors looking for income will find that dividend as an important factor when it comes to determining which company to invest.

Speaking of dividends, income seeking investors will be disappointed by Tesla’s non-dividend paying policy. In fact, Tesla has not paid any dividends since its IPO in 2010.

While Tesla has not initiated any dividend paying policy so far, it does not necessary mean that the company will not pay any dividends in the future. It is still possible for the company to start paying dividend when the company’s fundamentals improve.

On the other hand, General Motors has been a dividend paying stock since 2014. However, the company has temporarily suspended its dividend in Q2 2020 until further notice.

As we all know, General Motors has been one of the automakers that has been badly affected by the recent COVID-19 outbreak. As a result, the company has suspended its dividends in order to improve liquidity.

While GM has not given any date on which it will start paying dividend again, my opinion is that the company will most likely re-initiate its dividends policy when the outlook improves. For your information, GM has suspended its dividend prior to 2014 due to economy downturn but has brought back the dividends once the company’s business regained its footing in 2014 and has not missed a single quarter of dividend payment since then.

Similarly, GM will definitely re-start its dividends when the economy improves and sales come back to the company. Income seeking investors will find GM’s stock to be attractive when it’s yielding as much as 7% in Q1 2020 before the dividend suspension occurred.

While GM’s dividends may not yield that much when it starts paying dividends again, it will most likely be in the ballpark of 3% or more.

In this aspect, GM wins hands down in terms of dividends as the company has not missed a single payment since 2014 but has suspended the dividend in Q2 2020. On the contrary, Tesla has not paid out any dividends at all since its IPO.

Tesla vs GM: Profitability

GM vs Tesla in profitability

GM vs Tesla in profitability

Another factor that is just as important as all the previous factors when it comes to which stocks to buy would be the profitability factor. Similar to revenue and vehicle deliveries, the profitability of both Tesla and General Motors is a crucial factor to consider when figuring out which company to invest.

As such, I have created a chart above that presents the net profits of both Tesla and GM on an annual basis from 2017 to 2019.

As seen from the chart, both companies suffered serious losses in 2017 when GM and Tesla’s net profits were -$3.9 billion and -$2 billion respectively. However, GM’s net profit improved in 2018 and 2019 when yearly net profits were $8 billion and $6.6 billion respectively. In contrast, Tesla’s losses persisted from 2018 to 2019 at nearly $1 billion of loss each year.

In other words, GM has been a profitable company but not for Tesla. Therefore, investors looking for profitable company to invest may want to pick GM and avoid Tesla.

A profitable company definitely beats a non-profitable one as the extra profits can be channeled back to the company for future investment and expansion and may result in rising stock price in the future. Moreover, the extra profits can also be paid out as dividends as in what GM has been doing over the past 3 years.

On the flip side, Tesla has to rely on external capital to fund its ongoing operations and day-to-day business activities due to the unprofitable business the company has been running. This has resulted in extra risks for Tesla’s stocks and thus greater volatility of the stock price.

The reason of the extra risk and volatility can be largely attributed to the fact that Tesla can go out of business at any time if the company failed to obtain the much-needed capitals. Moreover, the movement of Tesla’s stock has been largely driven by investors’ sentiments instead of the fundamentals of the company.

For the reason discussed, investors who are risk-averse and can’t handle the day-to-day volatility of Tesla’s stocks should opt for GM’s stock. Besides, not to forget that GM has been making profits all these years.

Tesla vs GM: Free Cash Flow

GM vs Tesla in free cash flow

GM vs Tesla in free cash flow

As the saying goes, cash is king especially during periods of economy uncertainty. Therefore, whoever holds and generates the most cash will become the kingmaker in time of adversity. For this reason, the chart above was created to showcase the comparison of both Tesla and General Motors’ free cash flow.

When we look at the chart above, General Motors generated the most cash between 2017 and 2019, with free cash flow ranging from $9 billion to $7 billion between the shown period. On the contrary, Tesla has run into free cash flow deficit in 2017 and 2018 but managed to generate as much as $1 billion of free cash flow in 2019.

For your information, free cash flow is defined as operating cash flow minus capital expenditures. Therefore, free cash flow is the cash left after spending on working capital and investment. Free cash flow is a very powerful metric in determining the performance of a company as the company can freely use the cash such as in debt repayment, dividend payout and business acquisition for expansion.

For company that generates plenty of free cash flow, it will most likely thrive in the long run compared to a company that generate little to no free cash flow.

As the chart shows, Tesla’s free cash flow has been on a deficit for over 2 years, meaning that the company has consumed more cash than the business could replenish. However, the company finally managed to bring about $1 billion of free cash flow in 2019.

On the other hand, GM has been self-sustaining in free cash flow generation which means the company’s business operation is able to generate the cash required for its internal consumption as well as investment in properties. In this aspect, GM does not have to rely on external funds to support its business operation as opposed to Tesla which constantly requires external funds to keep the business running.

Again, investors who are risk-averse and can’t handle the volatility of Tesla’s stock should invest in GM’s stock due to the company’s stable free cash flow generation. Tesla’s stock will most likely be volatile considering that it is risky and will go bankrupt at anytime. The reason that Tesla still exists today is largely due to the external capitals that have been keeping the company afloat.

Conclusion

In summary, the question of which stock is a better buy, be it Tesla or General Motors, will largely depend on the needs of the investors.

For example, if the investors are income-oriented and looking for a non-volatile stock, then General Motors would be the best choice.

Alternatively, if the investors are growth-oriented and can handle the volatility, then Tesla would be the best bet.

References and Credits

1. Financial data and numbers in all charts in this article were obtained and referenced from General Motors’ and Tesla financial statements available in: GM SEC filings and Tesla SEC filings.

2. Featured images in this article are used under Creative Common licenses and obtained from the following source: Alpha and Marco Verch.

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